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Is Timber Insurable? A Study of Wildfire Risks in the U.S. Forest Sector Using Spatio‐temporal Models
Author(s) -
Chen Xuan,
Goodwin Barry K.,
Prestemon Jeffrey P.
Publication year - 2014
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aat087
Subject(s) - estimation , scale (ratio) , index (typography) , environmental science , risk management , environmental resource management , econometrics , business , computer science , geography , economics , cartography , management , finance , world wide web
In the U.S. forest products industry, wildfire is one of the leading causes of damage and economic losses. While individual wildfire behavior is well studied, new literature is emerging on broad‐scale (e.g., county‐level) wildfire risks. Our paper studies wildfire risks using crucial informational variables across both spatial units and time periods. Several statistical models are used to quantify the risks. We develop several maximum likelihood estimation methods to account for spatio‐temporal auto‐correlation in conditional risks. A group index insurance scheme is proposed, and its associated actuarially fair premium rates are estimated and presented. Implications for wildfire management policies are also discussed.